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Quantum Computing: What Investors Need to Know
Quantum computing technology is still young and won’t deliver fast returns yet, but its future is bright.
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Quantum computing often sounds like science fiction. With talk of "qubits," "entanglement," and "superposition," it’s easy to get lost in the physics and miss the financial picture. But for investors, the noise surrounding this technology hides a crucial signal: we are witnessing the birth of a new computing era.
While the technology is complex, the investment thesis doesn't have to be. This blog breaks down the current state of the industry, assessing when this technology will be ready for prime time and where the real opportunities lie. You can read the complete Quantum Computing Technology Observer report here.
The Market Potential for Quantum Computing
The revenue potential here is buzzing for a reason. Quantum computing isn't just a faster version of the laptop on your desk; it is a fundamental reimagining of how we process information. This shift has the potential to impact enormous areas of the global economy.
The industries most likely to be affected first—such as pharmaceuticals, chemicals, and finance—generate approximately $36 trillion in annual revenue. Even a tiny efficiency gain in these sectors translates to massive value.
According to our analysis, if these industries allocate just a fraction of their R&D budgets to quantum solutions, the market for quantum computing could hit approximately $200 billion annually at maturity.
Source: Morningstar
However, "maturity" is the operative word. This isn't a market that will explode overnight. It is a long-term play that requires patience, but the ceiling for growth is exceptionally high.
Timeline for Commercialization and Returns
If you are looking for rapid returns in the next 12 months, quantum computing might not be the right sector. The road to commercialization is long, and we need to be realistic about the timeline.
Currently, the technology is still in its infancy. The total revenue generated in the quantum computing space was close to just $400 million in 2024. However, projections suggest a massive ramp-up is coming. McKinsey projects between $900 billion to $2 trillion in value added by 2035.
So, when does the real shift happen?
We expect early commercialization—where companies start paying for quantum services to solve real problems—is at least 5 to 10 years away. General-use quantum computers that can handle a broad range of tasks are likely 20 years out.
Source: Alphabet, Morningstar.
For investors, this means the horizon is measured in decades, not quarters. The industry revenue curve is likely to be pushed out considerably, requiring a strategy of "patient capital."
Key Players in the Quantum Computing Space
The competitive landscape is crowded, but clear leaders are emerging. More than 100 discrete companies are currently developing quantum computer hardware, software, or services. However, not all of them will survive the journey to commercialization.
We view the "platform model"—similar to how cloud computing works today—as the likely winner. Building and maintaining a quantum computer is incredibly expensive and technically difficult. It makes sense that the companies with the deepest pockets and existing cloud infrastructure have a massive advantage.
IBM stands out as the clear leader today. They have secured $1 billion in cumulative quantum signings since Q1 2017, demonstrating real commercial traction. Alongside IBM, hyperscalers like Alphabet (Google) and Microsoft are well-positioned. They have the financial resources to sustain years of R&D and the cloud platforms to deliver quantum services to customers. They also already have an array of quantum services available in their cloud platforms.
Source: Company releases, Morningstar. Note: rQOPS = reliable quantum operations per second.
For investors, this suggests that betting on established players with strong balance sheets may be safer than chasing small, pure-play startups that might run out of cash before the technology matures.
Challenges Investors Should Be Aware Of
Before we see widespread adoption, the industry must overcome significant engineering hurdles. It's not just about building a computer; it's about building a stable ecosystem around it.
Using an adapted technology readiness level framework from NASA, quantum computing currently sits at level four. This means it is still firmly in the experimental phase.
The primary challenges are technical:
- Scaling Qubits: We need chips with more processing power.
- Fragility: Qubits are incredibly sensitive to noise and interference.
- Error Correction: We need better ways to fix errors that occur during calculation.
Source: Morningstar.
These barriers create a "trench" around the industry. Only companies with significant resources and top-tier talent can solve these problems. Investors should be wary of companies claiming to have "solved" quantum computing without rigorous proof.
Early Use Cases and Their Investment Implications
While general-purpose quantum computers are years away, specialized applications will arrive sooner. These early wins will likely happen in optimization, simulation, and encryption.
For example, in agriculture, quantum computing could help design better fertilizers, potentially reducing water and fertilizer usage by up to 25%. In pharmaceuticals, it could simulate molecular interactions to speed up drug discovery. In finance, it could optimize portfolios in seconds rather than hours.
Source: Morningstar.
These initial use cases will be highly specialized. They will require a "hybrid" approach where classical computers (like the ones we use today) work alongside quantum machines. This complexity favors companies that can offer integrated solutions—another point in favor of the major cloud providers.
What Should You Do with This Information?
Quantum computing represents one of the most exciting technological frontiers of our time. It promises to unlock value across the global economy, from smarter agriculture to breakthrough drugs.
However, for investors, the key is patience. The path to a $200 billion market is paved with technical challenges and long development cycles.
The smartest play today is likely focusing on the "picks and shovels" of this gold rush: the large, well-capitalized companies building the platforms that will power the quantum future. By keeping a long-term perspective and watching the development of key players like IBM, Alphabet, and Microsoft, investors can position themselves to capture the value of this transformative technology when it finally arrives.
